Cargojet is built for the long haul, this investor says

Airlines like Air Canada may be putting more weight behind their cargo businesses but that won’t keep Cargojet (Cargojet Stock Quote, Chart, News, Analysts TSX:CJT) from continuing to soar. So says portfolio manager Brendan Caldwell who thinks there’s more than enough overnight shipping business to go around.

Cargojet shareholders are smiling after the close of a remarkable year where the company’s share price went from $103.33 to start 2020 and ended up at $214.83 by December 31. That’s a return of 108 per cent, more than a double for a stock that saw increased attention due to pandemic-induced lockdowns and a work-from-home culture, both of which ratcheted up volumes for overnight freight, Cargojet’s bread and butter.

We have yet to see CJT’s numbers on the holiday season but the company said it will likely be a peak season with volumes “like none other.”

In a late November update, Cargojet management quoted a Stats Canada report saying e-commerce retail sales for the period of March to September grew by 68 per cent, with the holidays expecting to ramp that number even higher. In response, Cargojet said it added two aircraft to its fleet along with adding more flights per week, essentially boosting its capacity by 20 per cent.

“There is no doubt this peak will be like none other but Cargojet has proven starting with the surge in volumes in March of this year that it has a robust team, a highly flexible fleet and the ability to adapt, handle and succeed in meeting customer expectations in the face of unprecedented challenges,” said Cargojet in a November 25 press release.

Cargojet’s share price fell particularly hard during the early 2020 market downturn, losing over 40 per cent at the nadir, but unlike the airlines who struggled for much of the year — both from an operational standpoint and in the markets — CJT started climbing in late March and never looked back.

With passenger travel decimated for much of the year, airlines were in tough, relying on government support to stay afloat. Air Canada saw passenger numbers fall by over 90 per cent, and like a number of airlines, started converted some of its fleet into cargo carriers. The result was a 22-per-cent increase in cargo revenues over its latest quarter, with Air Canada saying it hit the 4,000-flight mark earlier in December.

“Air Canada Cargo has emerged as an outstanding performer during the COVID-19 crisis and was a key player in transporting medical equipment including PPE to Canada early on. It is impressive that the Cargo team re-engineered its business model and network for cargo-only flights in March and has now successfully operated 4,000 such flights onboard both mainline widebody aircraft, as well as seven transformed widebody aircraft enabling cargo transport in the cabin, said Lucie Guillemette, Executive Vice President and Chief Commercial Officer, in a December 16 press release.

The news in early November that Air Canada was aiming to bring some of its retired Boeing 767s into service as dedicated cargo planes may have spooked Cargojet investors, as the stock took a major plunge at the time of Air Canada’s announcement.

But Caldwell, president and CEO of Caldwell Investment Management, said Cargojet’s future still looks bright.

“Cargojet is still one of our core holdings in our value momentum strategy. It was a big, big beneficiary of the need to send packages everywhere,” said Caldwell, speaking on BNN Bloomberg on Thursday. “Think about how the economy is running — coming back to my kids, my middle daughter has a job and still lives at home and so literally every day there’s an Amazon package arriving. And if that’s my experience then it’s probably the experience of a few other folks.”

“People are shopping online and the packages are coming from someplace and Cargojet has really benefited from that,” he said. “It did take a hiccup earlier this year when Air Canada, which because it’s not flying passengers commercially anymore, or at least not nearly as much, part of its business had been to throw cargo into the hold of its planes to transport it. They said they were going to ramp that up and do a little bit more and so Cargojet took a hit on that.”

“But it turns out that it’s not going to be probably that big of an impact on Cagojet’s business, especially given this tsunami wave of everything being shipped everywhere,” Caldwell said. “So, it’s still one that we hold and still one that we’re quite enthusiastic about.”

Cargojet has business beyond its domestic overnight operations, with an ACMI (Aircraft, Crew, Maintenance and Insurance segment and an all-in charter service as well. Early in December, Cargojet announced an expansion of its ACMI agreement with DHL Express, adding three international routes out of Hamilton, Ontario to DHL’s hub in Cincinnati and onto both Monterrey, Mexico, and the United Kingdom. Cargojet now operates a total of nine aircraft for DHL.